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Usage-Based Insurance: Launch lessons

Source: Asia Insurance Review | May 2015

Mr Andrew Dart from CSC explores the essential ingredients in launching a successful Usage-Based Insurance (UBI) motor product and how lessons learned in other markets can be applied to launch more rapidly in your market.

“Do no harm.” That is part of the Doctor’s oath, and it was the underlying thinking behind Progressive’s launch of UBI into the US insurance market back in 2010. Their message was straightforward – try our Snapshot device and your insurance premium will only go down and how far down depends on how well you drive. 
Fast forward five years of “Flo” hammering the virtues of UBI, with Progressive claiming over 30% of their private motor portfolio and US$3 billion in annual premium now emanating from UBI and with nearly every tier 1 carrier presently copying Progressive’s successful UBI format; Progressive has announced in March 2015 that they are going to charge higher premiums for the worst behaving drivers on their books, effectively dumping the concept of “Do no harm”.
A mountain of data
And why not? As the pioneer of UBI in the United States, Progressive has accumulated the trip data of millions and millions of customers over a number of years – tens of billions of miles of journey data coupled with hundreds of thousands of claims – effectively giving them unique insights into the behaviours that cause accidents. 
Based on listening to customers, their marketing programme has now shifted from “Plug it in. Drive. Save.” to the concept of “Rate suckers” – bad drivers getting a free ride on the premium that safe drivers pay. 
Progressive’s research showed that 89% of drivers would be upset to find out that their premiums were subsidising bad drivers. So loading the premiums of bad drivers backs up their marketing message and should further fuel the positive selection of good drivers moving to Progressive, while chasing away the bad drivers to cheaper less data savvy carriers.
This adverse selection for Progressive’s competitors will eventually move the market to fully data driven underwriting over the medium term.
UBI is not your typical insurance product
All this goes to show that UBI is not your typical insurance product. Keys to success for Progressive have been:
1) the ability to accurately model the risk and develop a compelling pricing model based on the new data made available from the telematics device; 
2) create an attractive customer proposition;
3) educate the market in the benefits of the proposition with a targeted campaign; and
4) implement the operational processes which deliver on the promise of the marketing message.
Many insurers get dazzled by the telematics gadget and technology and lose sight of the fact that success really turns on delivering a compelling customer proposition fuelled by deep customer insight.
I still find it intriguing that many UBI RFI and RFPs are being run by the Insurance IT department, as the proposition will only be truly successful when the Strategy, Marketing, Product development and operations teams become involved. 
In fact, I have run a number of Telematics engagements and the technology is quite straightforward, where arguably the hardest part is finding where to plug in the Telematics sensor on the vehicle. Usually data starts to flow almost immediately and drivers start getting scores the following day. However, that UBI plugging-in and data flow marks a “Moon landing”, as your relationship with the insurance customer will be forever changed.
Changing the customer proposition
Let’s face it, in the past, a customer usually shopped for the cheapest price of motor insurance, bought it and then tucked the policy away in the glove compartment of the vehicle with little or no contact with the insurer until it came time to claim or renew. 
With UBI, the Insurer provides the customer with a companion mobile app (and website) which gives daily feedback on their driving skills and opens up a range of value-added services like: 
Real-time vehicle location viewing;
Teen safety monitoring (geo-fencing;)
Driver feedback (Rating, Score), ongoing tips to improve driving style, and reduce accident risk;
Trip replay functionality with mapping;
Driver behaviour indicators (harsh braking, reckless driving, acceleration) within trip;
Logbook – trip information – Tax and fuel log expense claims;
Parking meter reminder;
Vehicle fault notifications; and
eCall (emergency / panic button) and bCall (breakdown).
You may have noticed I have skirted the issue of “Push” marketing offers, which this connectedness will certainly open up. If handled with the mindset of truly benefiting the customer, then this could be a good thing, but it is a fine line between good and spam. 
I have advocated elsewhere, that dynamic affinity offers when coupled with a high degree of personalisation, will present much greater value to the customer rather than the scattergun coupon books that typically prevail today.
UBI in China
In China, over the last 18 months, quite a few insurers have piloted UBI propositions in advance of the deregulation, and affinity offers – value-added services have figured prominently. 
Most have offered a flat 10% insurance discount for simply trying out UBI. PICC, in partnership with Tencent and Shell, launched their “Lubao” box in early 2014. It is a plug-in device which connects to a mobile App which displays the current status of the car, runs routine diagnostics checks, offers advice on fuel-saving driving techniques, discounts on Shell products, provides proactive road-side assistance, and funnels all that data back to the insurance company and its partners. Seems like a dress rehearsal for rolling out a full “Progressive-style” pay-how-you-drive insurance programme when regulations allow. 
Other insurers have offered time saving value-adds like streamlining the payment of traffic violations, which I am told can be quite inconvenient in China.
Different markets – Different themes
In some Asian markets, women’s safety while driving has been seen as a good landing place for the UBI proposition, with a “Panic” button being built into the App. 
In other markets where organised fraud is rampant, UBI provides the data to effectively be a silent witness to what really happened and protect the interest of the customer and the insurer. In Ireland, I recently read of a fraud ring that was systematically targeting drivers on country-side roundabouts and making phony whiplash claims at over $20,000 per person. 
The data from the UBI device would help stamp out those kinds of claims, sparing the customer from the resulting increased premiums and months and months of stress and mental anguish during the claim settlement process.
In Europe and the US, for young drivers and families with young drivers, the advent of UBI has been the key to making insurance affordable. And in Europe, where discrimination based on gender was banned, a new insurer, Drive-like-a-Girl, launched a telematics proposition quite similar to Progressive’s, where anyone with good driving habits (sic: driving like a girl) earns a discount eliminating the need for proxy rating factors such as age and gender. 
UBI: Win, win, win
The UBI proposition winds up being quite beneficial all around. 
Firstly, the community wins with improved road safety and easier to understand motor insurance contracts – pay for what you use. Secondly, customers win with cheaper insurance with the ability to control the cost by improving their skills plus they get a whole range of new features from vehicle fault monitoring through to faster claims settlement. Finally the insurer wins, as they accurately monitor risk and use data to find new ways to engage customers – moving the conversation from price to value and establishing life-time brand associations with their customers.
Do no harm. It is certainly a good starting place as it gets you thinking from the customer’s perspective, but UBI presents a whole lot of value just waiting to be unleashed for everyone – just find what is most important for your customers and you should have a success when you launch your UBI proposition.
See you in the parking lot.
Mr Andrew Dart is an Industry Strategist at CSC.
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